Thursday, December 24, 2015

Why Did Home Sales Drop So Dramatically Last Month?

Yesterday, the National Association of Realtors
(NAR) released their latest Existing
Home Sales Reportwhich covered sales in November. The report revealed
that sales:

“…fell
10.5 percent to a seasonally adjusted annual rate of 4.76 million in November
(lowest since April 2014 at 4.75 million)…”

That revelation gave birth to a series of industry
articles, some of which quoted pundits questioning whether the housing market
was slowing. In actuality, there is one rather simple explanation to much of
the falloff in sales last month. It is likely the implementation of the “Know
Before You Owe” mortgage rule, commonly known as the TILA-RESPA Integrated
Disclosure (TRID) rule, which went into effect on October 3. These regulations
caused house closings to be delayed by an extra three days in November as shown
in the graph below.

Three days might sound like a minimal difference.
However, since there are only approximately 20 days in a month that a closing
would normally take place (Mondays through Fridays), losing three days
constitutes well over 10% of all closings. These sales are not lost. They are
just moved into the next month’s numbers. In a DS Newsarticle
on the subject yesterday, Auction.com EVP Rick Sharga explained:

“The
most likely cause for the weak sales numbers is a delay in processing loans due
to the new TRID mortgage requirements imposed by the CFPB. This is the biggest
change in mortgage document processing in many years, and there have been
numerous reports within the industry of problems implementing the process and the
new documentation that comes with it.”

So how is the housing market actually doing?

A better way to look at how well the housing market
is doing is to look at the Foot Traffic Report from NAR which quantifies the
number of prospective buyers that are actively looking for a home at the
current time:

We can see immediately that demand to buy single
family homes is increasing over the last few months - not decreasing.

Bottom Line

No matter what last month’s sales numbers show, the
housing market is still doing well as demand remains strong.